At the Forefront of North America’s Energy Market: 20 Catalysts for Change in 2017

In today’s rapidly changing and increasingly competitive energy market, it is important that we, as energy industry professionals, stay abreast of arising opportunities and emerging challenges. WEI strives to understand the obstacles facing our Members and to present programs that offer opportunities to address their major, strategic issues. During WEI’s annual strategic planning process, we identified 20 challenges and trends on the horizon that have the potential to impact our Members and transform North America’s energy industry. In the spirit of WEI’s mission, we share these with our readers and hope to encourage open and collaborative dialogue across the energy community.

1. Decarbonization efforts will accelerate.

a. International, national and subnational efforts to mitigate climate change will drive a wide range of actions to reduce carbon emissions across all business sectors.b. The EPA Clean Power Plan (or a variation of it) will continue to influence utility-generated electric power generation and, in combination with water scarcity issues, it will continue to drive a changing, utility-scale, plant mix across the Western Electricity Coordinating Council’s (WECC) footprint.c. Electrification of the transportation sector will increase, providing potential revenue opportunities for utilities.d. Non-utility investment into energy efficiency and renewable generation will increase.

2. Electricity services will become more distributed and less centralized.

a. End-use consumers will continue to adopt new, demand-side management technologies that enable increased levels of freedom, security and control. This includes energy efficiency, distributed generation, distributed storage and demand response.b. The proliferation of distributed generation and distributed storage (both stationary and mobile) will increase the volume and complexity of bidirectional energy flows (bulk and retail).c. End-users will decrease their dependency on retail utilities for electric power service during different parts of the day and year.d. The technical and financial challenges of transitioning distribution systems will drive utility consolidation in both the public and private sectors.

3. Forecasts suggest that flat-to-declining regional loads will be the norm until transportation is electrified or until populations significantly increase.

a. State and federal energy-efficiency codes and standards, and carbon-reduction action plans will mandate significant load reduction from existing and future buildings and appliances.b. Consumers will voluntarily adopt a range of increasingly cost-effective, load-reducing technologies behind the meter. These include solar, energy-efficiency, storage and energy management systems.c. Utilities that experience significant electric vehicle penetration and/or significant increases in population may be able to counter some of these load losses or increased loads.

4. Market and regulatory structures will shift, reflecting a west-wide orientation and expanding the involvement of non-utility parties.

a. The increased penetration of renewables and distributed energy resources will continue to require innovative resources, distribution and transmission solutions in order to maintain reliability at the lowest cost.b. New market entrants (such as solar system installers, distributed storage system providers, energy management companies and others) will continue to push regulators to enable increased competition with utilities.c. Growing bipartisan support for “personal energy independence” will challenge the protected monopoly status of retail utilities.d. Key industry transitions (in New York, California, Hawaii, Texas and overseas) will inform and shape the imaginations and expectations of regulators and stakeholders.

5. Opposition to expanded electric transmission. Obtaining regulatory and governmental approval to expand and shore-up transmission lines means navigating a maze of public and special interest input. Consequently, this will likely result in an underground electric transmission similar to the recent line completed by Southern California Edison.

6. Natural gas supply and regulation. Confidence in the availability of low-cost natural gas remains high, as well as assurance that it will take market share away from higher-cost nuclear and retiring coal assets. At the same time, supply and price are at risk of being affected by increased regulation of natural gas fracking in both California and nationally.

7. Rates. Governments and public utility commissions will begin to balance their regulatory treatments of utilities and consumers to reflect the increasing integration of distributed energy resources. California’s PUC – probably the first jurisdiction – will likely enable electric utilities to become distribution grid operators requiring a new pricing structure.

8. Cost of natural gas. The cost of natural gas is both an opportunity and a threat to the natural gas industry. The cross-industry optimism of 2013 and 2014 has been replaced by a bifurcated market in which some producers face existential threats from an extended period of low gas prices and declining arbitrage opportunities for exports. Meanwhile, opportunities to expand service in the power sector may create favorable circumstances for midstream companies and LDCs — if those providers can deliver access to a firm gas supply.

9. Natural gas environmental issues. Pipeline projects are receiving greater attention from environmental and safety activists as owners attempt to build infrastructure to meet the rising demand for gas power generation and liquefied natural gas (LNG) exports. Environmental activists have recently turned their attention to FERC’s extensive pipeline siting process as an opportunity to slow or block projects. In particular, environmental groups opposed to increased supply from shale gas production have tried to disrupt FERC pipeline proposal meetings through mounting protests and social media campaigns. This creates additional hurdles for maintaining project timelines and has the potential to derail pipeline projects entirely due to rising development costs and the possibility of missing key milestones under contract obligations.

10. Natural gas demand issues. Demand from the U.S. power sector and export markets continue to grow, but bullish expectations for midstream development have been tempered by new regulatory and nongovernmental hurdles. Among local distribution companies, however, the search for new sources of revenue (while managing aging infrastructure) remains a top priority.

11. Non-hydro resources will become increasingly competitive in the West.

a. Natural gas prices are projected to remain low for the foreseeable future, gradually increasing on average as electric power production and exports increase demand.b. Wholesale market prices will also gradually rise across WECC.c. Renewable energy market penetration will have a growing impact on wholesale markets, and will create new opportunities and requirements for the provision of ancillary services.d. In the long-term, changes in markets, rates, technology and load behavior may reduce real-time market volatility and capacity shortfalls, such as the increased generation capability of renewables and the increased functionality of building-level energy management.e. By 2028, competitively priced, utility-scale wind and solar power could displace some of the Federal Columbia River Power System’s generated power.

12. Climate change will have a growing impact on water supplies and hydropower production capacity in parts of the West.

a. Higher air temperatures may decrease snowpack in some areas, increase glacial melt, and increase drought and fire conditions.b. Freshwater scarcity across WECC may spur the replacement of water-intensive thermal plants (such as coal and nuclear) with solar, wind and combined-cycle gas turbines.

a. Courts may require the removal of dams to restore endangered species’ populations.b. The Pacific Decadal Oscillation is projected to shift to its warm cycle by the 2020s, which will likely result in lower salmon production in Washington, Oregon and California.c. The acidification of the Pacific Ocean is projected to have a negative impact on salmon populations due to decreased availability of food and to increased predation.d. Climate change impacts to freshwater habitats, such as warmer water, changed timing and flow volume, will act as a “threat multiplier” to salmon.

14. Cybersecurity. Headline-grabbing security breaches are on the minds of electric and natural gas utilities. A number of North American utilities feel they are not prepared to address the standards of North American Electric Reliability Corporation’s (NERC) Critical Infrastructure Protection (CIP). These low-impact, cybersecurity system requirements became effective in April 2016.

15. Physical security. In addition to cyberattacks, there are potential threats to physical facilities and personnel due to crime, terrorism, vandalism or lone actors. Physical security measures need to be applied at facilities to safeguard or protect the organization’s assets – its people, property and information. These measures include: crime prevention through environmental design; physical barriers and site hardening; physical entry and access controls; security lighting; intrusion detection systems; video surveillance; security personnel; and security policies and procedures.

16. Safety. Safety, for both employees and customers, is a paramount issue for natural gas and electric companies. Employees work tirelessly to manage risk, avoid incidents and ensure safety through a variety of programs and initiatives. Having a successful safety culture requires a continued, but evolving, strategy for all employees at these companies.

17. Addressing natural gas safety issues. Natural gas distribution has inherent risks and safety concerns that must continually be addressed. For example, the majority of gas infrastructure is located underground and in many instances is under pavement in older, densely populated areas. Some areas are served with natural gas systems that date back to the mid-1800s, varying in the type of materials and pressure controls used throughout the system. Safety and health risks posed by aging pipelines remain an issue for an industry often vexed by the vulnerabilities of decades-old cast iron or bare-steel pipes. Proposed rules would substantially increase compliance costs, but may not target resources to produce the greatest safety benefit.

18. Successful electric and natural gas utilities will be the “utilities of the future.” Utilities will embrace infrastructure investments that allow normal business activities to be conducted using two-way communication technology with informed customers. Similar to the Internet, the Smart Grid will use computer processing and automation to digitally respond to quickly changing electric demands.

19. An aging workforce. Most electric and natural gas providers have aging workforces that require new talent. There is heavy demand for highly technical and qualified office and field personnel who can thrive in a complex and changing environment. A key need is the transfer of technical knowledge to staff in design, planning, project management and other phases of project execution. Additionally, robust emergency response training is needed to maintain system resiliency and safety, which can be implemented through drills, employee training, and adequately funded operations and maintenance budgets. Utility leadership will also need to successfully facilitate integration of new employees to leverage diverse new perspectives and to create synergetic and innovative teams.

20. Customer engagement. Renewables, combined with battery storage, is the demand response trend that will most affect electric utility businesses. Most utilities plan to increase their use of data over the next two to three years to measure consumption behavior and other customer patterns.